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Jakarta Post

72 years after: Indonesian public housing authority, why do we need that?

There are no measures in place able to control the functioning of the market to fulfill the need of low-income people.

Muamar Vebry (The Jakarta Post)
Jakarta
Fri, August 18, 2017

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72 years after: Indonesian public housing authority, why do we need that? The housing market in Indonesia suffers from a lack of regulations, the quasi-void public housing providers and volatile behavior of market players. (Shutterstock/File)

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he housing market in Indonesia suffers from a lack of regulations, the quasi-void public housing providers and volatile behavior of market players. After 72 years of independence, yet to date, there are no measures in place able to control the functioning of the market to fulfill the need of low-income people. Despite the many low-cost government funded housing projects and programs, the aim to serve low-income people has never been realized, extending the list of backlog. 

What has happened are simply scattered and sporadic initiatives, a politically theatrical show, poorly planned and managed and thinly spread of a piecemeal approach. Yes, there are many government-led schemes to provide housing to the poor, of which in many cases are factually misdirected toward a short-term political goal rather than addressing the root causes of the issues

Lack of political will to manage the low-income housing sector is the main culprit. There is no systematic, properly designed and well-targeted public housing program while market forces are uncooperative and play a substantial role to limit the supply of low-cost housing and manage to keep the housing price beyond low income people's purchasing power, not to mention that many developers have become disinterested in low-cost housing, simply because they can’t make good profits out of it. 

With the uncertain economic outlook of 2017 onwards, it's estimated that people are more inclined to save their money instead of purchasing new assets, which in turn will decrease the domestic spending and lead to economic downturn. This should be avoided at all cost. We need to spur the spending, and the best spending strategy is to focus on investing in the low-cost housing, which is a low risk investment, with low return, but for sure will increase domestic consumption.

Nevertheless, these hard facts need to be noted. First, the landed property is overpriced. Second, private developers are not capable of addressing the pressing need of low-cost housing demand as most are bogged down in supplying houses to the niche market of middle income and high income groups.

Alas, strong and systematic measures on the strategic level should be devised to allow robust and stable conditions for the functioning of the housing market and spur back the much-needed spending and kick back the economic growth.

Nevertheless, strong and targeted spending required a dedicated and specialized agency. The agency will be mandated to tap the untapped resources and energy of the low-income earners. The first ever Indonesian public housing authority should hold the mandate to provide housing for the low-income earners, and, as by-product, to invest the return on investment to other housing projects throughout Indonesia. One, two cycle at a time, then leads to another cycle, nonstop, keep rolling till all the backlog drops.

Arguably the liquidity facility that has been operating since 2012, which provides an interest subsidy to the low-income earners, is one of the tools to address the issue surrounding affordability, so that the interest rate steadily capped at 5 percent under the normal commercial interest rate. 

But there are many contrary views related to the success of the liquidity facility. For instance, one could argue that with interest subsidy and extremely low down payment percentage (in some case capped at 1 percent) it will automatically improve affordability. But another would argue that no matter how big the interest subsidy and the extremely low down payment percentage the “core unit price” is still beyond reach, so this is like milking the cow from his first day till the end of his life. The poor guy has no option rather than to become the slave of the mortgage for the rest of his life if we use ratio of the median house price to the median annual household income analysis. 

One thing for sure the abovementioned it is always good business for the banking industry as they will enjoy the common market interest rates for housing loans, subsidized by our taxpayer’s money. It is a sustainable business model for the banking sector but it is for sure not the best model for sustainable housing delivery system.

It is time for us to put behind our past sins; we must admit that provision of basic and affordable housing is beyond financial engineering, new construction methods and technology, innovative land provision or latest project management tools. The issues are so complex, which no one can solve it independently.

Housing issues are a systemic and interdependent issue and those of issues with systemic characters must be faced wholeheartedly and cannot be dealt partially. It is time for us to converge our collective mind and invest in the notion of having the first Indonesian public housing authority, which is mandated to cook all the ingredients that consist of too many moving variables. But with clarity and focus it will finally serve a decent, adequate and affordable shelter for low income earners. This would be the best gift for Indonesia’s 72th birthday as a means for distribution of progress.

Anyway, there is nothing new about this gift, as most advanced countries that have built a solid housing delivery system depend on the performance of their public housing authority. 

And suddenly I just woke from my dream. A very good dream.

Happy birthday Indonesia!

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